Union Bank expects Rs 1,500 cr fund infusion from govt

Union Bank of India today said it expects the government to hike its stake in the public sector company to up to 60 per cent in the near future through a Rs 1,500 crore capital infusion.

"We have requested the government capital infusion to the tune of Rs 1,500 crore. It is up to the government to decide how much to give... The equity infusion of Rs 1,500 crore should take government's holding (from the present 55 per cent) to 60 per cent," Union Bank of India Chairman and Managing Director M V Nair said.

The government had infused Rs 6,211 crore into five public sector companies in June this year, out of which Union Bank of India got Rs 111 crore in the form of perpetual non-cumulative preference shares (PNCPS).

"The government has in-principle agreed to provide capital infusion to banks... The capital support would raise government holding from current 55 per cent to 60 per cent," he said on the sidelines of the bank's 92nd Foundation Day function here.

If the government hikes its stake to 60 per cent, this will make the option of raising funds through a rights issue, or dilution of the government's holding, available to the bank to meet future capital requirements, he said.

"We hope that the decision about capital infusion would be announced before March, 2011," he said.

Nair said the bank plans to enhance its portfolio of loans at a 5 per cent faster growth rate than the industry average. This year, the bank is expecting credit growth of 25 per cent, he added.

To sustain this kind of growth over 4-5 years, the bank would require substantial tier I capital, he said.

As far as tier II bonds are concerned, he said the lender has a headroom of Rs 4,500 crore.

Asked about the bank's recent interest rate hike, Nair said Union Bank of India had hiked its base rate -- the minimum rate for lending -- about 20 days ago.

The bank will conduct a review of the base rate and Benchmark Lending Rate (BPLR) in the next two months, he revealed. "By December we will review the base rate," he said, adding that adjustment of other rates would depend upon the base rate review.